# ASC 740-10-30: Income Taxes — Overall — 30 Initial Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/10/#30-initial-measurement) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:6235af4ec37db8131f3a979da29cf01b8b4c6bdb64317aafc1122f2b6b6eddf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-10-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/740/10/#30-initial-measurement) SEC content: no ##### [740-10-30-1](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:aadd1f3a258ea8c4d901dfe6c8d59f4a462260add1a9e831ee8eaa685a3e3a4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section provides guidance on the measurement of total income tax expense. While most of this guidance focuses on the initial measurement of deferred tax assets and liabilities, including determining the appropriate tax rate to be used, the requirements for measuring current taxes payable or refundable are also established. This guidance also addresses the consideration and establishment of a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") for deferred tax assets. Requirements for entities that issue separate financial statements and are part of a group that files a consolidated tax return are also established in this Section. #### Basic Requirements ##### [740-10-30-2](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:3b422aa4637dd0b51f6a21fa179acb313cf7038882df29124c35d3fbb62a1f08 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following basic requirements are applied to the measurement of current and deferred [income taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income.") at the date of the financial statements: 1. a The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. 2. b The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. ##### [740-10-30-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:a704bec119cdf7534feb874ccf9b939326cd801abd92b35c8cc10b292c532ae0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Total income tax expense (or benefit) for the year is the sum of [deferred tax expense (or benefit)](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-expense-or-benefit "The change during the year in an entity's deferred tax liabilities and assets. For deferred tax liabilities and assets acquired in a purchase business combination during the year, it is the change since the combination date. Income tax expense (or benefit) for the year is allocated among continuing operations, discontinued operations, and items charged or credited directly to shareholders' equity.") and [income taxes currently payable or refundable](https://asc.understandingaccounting.org/glossary/i/#income-taxes-currently-payable-refundable "See Current Tax Expense (or Benefit)."). ##### [740-10-30-4](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:03f997ceaecd1d38d6b1318e455b2f9ea6ad23bc8923fe010824cbf0c0effcac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Deferred tax expense (or benefit) is the change during the year in an entity's deferred tax liabilities and assets. For deferred tax liabilities and assets recognized in a business combination or in an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities.") during the year, it is the change since the [acquisition date](https://asc.understandingaccounting.org/glossary/a/#acquisition-date "The date on which the acquirer obtains control of the acquiree."). For deferred tax liabilities and assets recognized by a [corporate joint venture](https://asc.understandingaccounting.org/glossary/c/#corporate-joint-venture "A corporation owned and operated by a small group of entities (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a corporate joint venture frequently is to share risks and rewards in developing a new market, product or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A corporate joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a corporate joint venture. The ownership of a corporate joint venture seldom changes, and its stock is usually not traded publicly. A noncontrolling interest held by public ownership, however, does not preclude a corporation from being a corporate joint venture.") upon formation, during the year that includes the [formation date](https://asc.understandingaccounting.org/glossary/f/#formation-date "The formation date of a joint venture is the date on which an entity initially meets the definition of a joint venture, which is not necessarily the legal entity formation date. The formation date is the measurement date for the formation transaction. If multiple arrangements are accounted for as a single transaction that establishes the formation of a joint venture, the formation date is the measurement date for all arrangements that form part of the single formation transaction."), it is the change since the formation date. Paragraph [830-740-45-1](https://asc.understandingaccounting.org/asc/740/830/#740-830-45-1) addresses the manner of reporting the transaction gain or loss that is included in the net change in a deferred foreign tax liability or asset when the reporting currency is the functional currency. ##### [740-10-30-5](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:65f46863e02a089cb2bf19d78830e8c37b0f8e0df4b1c29ad65ec34acb71352d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Deferred taxes shall be determined separately for each tax-paying component (an individual entity or group of entities that is consolidated for tax purposes) in each tax jurisdiction. That determination includes the following procedures: 1. a Identify the types and amounts of existing temporary differences and the nature and amount of each type of operating loss and tax credit carryforward and the remaining length of the carryforward period. 2. b Measure the total [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") for taxable temporary differences using the applicable tax rate (see paragraph [740-10-30-8](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-8)). 3. c Measure the total [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") for deductible temporary differences and operating loss [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year.") using the applicable tax rate. 4. d Measure deferred tax assets for each type of tax credit carryforward. 5. e Reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance shall be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. ##### [740-10-30-6](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:7f3fd620d03b74246e53b6ede8372b55899ed93a02d99885398a48c3bc120b32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income taxes payable or refundable (current tax expense \[or benefit\]) are determined under the recognition and measurement requirements for tax positions established in paragraph [740-10-25-2](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-2) for recognition and in this Section for measurement. ##### [740-10-30-7](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:91b2575a6de29fb0a59c8587f2c0a16b4eeadd8a7809011ca738382d5b85e3da Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [tax position](https://asc.understandingaccounting.org/glossary/t/#tax-position "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return A decision to classify a transaction, entity, or other position in a tax return as tax exempt An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity.") that meets the more-likely-than-not recognition threshold shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more-likely-than-not recognition threshold shall consider the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances, and information available at the reporting date. As used in this Subtopic, the term _reporting date_ refers to the date of the entity's most recent statement of financial position. For further explanation and illustration, see Examples 5 through 10 (paragraphs [740-10-55-99 through 55-116](https://asc.understandingaccounting.org/asc/740/10/#740-10-55-99) ). #### Applicable Tax Rate Used to Measure Deferred Taxes ##### [740-10-30-8](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:1edc2b06b598f231a28d408403a7b9076aa4e89a850d2c8c275c91d04c18ab24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-10-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-10-3) establishes that the objective is to measure a deferred tax liability or asset using the enacted tax rate(s) expected to apply to [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") in the periods in which the deferred tax liability or asset is expected to be settled or realized. Deferred taxes shall not be accounted for on a discounted basis. ##### [740-10-30-9](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:d9758f79fac933f7b7f54d928d9fdf9d07a1d471241dc3844a296f4890f91682 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under tax law with a graduated tax rate structure, if taxable income exceeds a specified amount, all taxable income is taxed, in substance, at a single flat tax rate. That tax rate shall be used for measurement of a deferred tax liability or asset by entities for which graduated tax rates are not a significant factor. Entities for which graduated tax rates are a significant factor shall measure a deferred tax liability or asset using the average graduated tax rate applicable to the amount of estimated annual taxable income in the periods in which the deferred tax liability or asset is estimated to be settled or realized. See Example 16 (paragraph [740-10-55-136](https://asc.understandingaccounting.org/asc/740/10/#740-10-55-136)) for an illustration of the determination of the average graduated tax rate. Other provisions of enacted tax laws shall be considered when determining the tax rate to apply to certain types of temporary differences and carryforwards (for example, the tax law may provide for different tax rates on ordinary income and capital gains). If there is a phased-in change in tax rates, determination of the applicable tax rate requires knowledge about when deferred tax liabilities and assets will be settled and realized. ##### [740-10-30-10](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:e314654437ae579365977314c21a87d0f3ffd53a219e992cb1edd1b168b78905 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the U.S. federal tax jurisdiction, the applicable tax rate is the regular tax rate, and a deferred tax asset is recognized for [alternative minimum tax](https://asc.understandingaccounting.org/glossary/a/#alternative-minimum-tax "A tax that results from the use of an alternate determination of a corporation's federal income tax liability under provisions of the U.S. Internal Revenue Code.") credit carryforwards in accordance with the provisions of paragraph [740-10-30-5(d) through (e)](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-5). ##### [740-10-30-11](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:bf892134fe5db635dd1a4d5dc0ff1545a5abdeea339636e74f37d32df714fbc6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The objective established in paragraph [740-10-10-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-10-3) relating to enacted tax rate(s) expected to apply is not achieved through measurement of deferred taxes using the lower alternative minimum tax rate if an entity currently is an alternative minimum tax taxpayer and expects to always be an alternative minimum tax taxpayer. No one can predict whether an entity will always be an alternative minimum tax taxpayer. Furthermore, it would be counterintuitive if the addition of alternative minimum tax provisions to the tax law were to have the effect of reducing the amount of an entity's income tax expense for financial reporting, given that the provisions of alternative minimum tax may be either neutral or adverse but never beneficial to an entity. It also would be counterintuitive to assume that an entity would permit its alternative minimum tax credit carryforward to expire unused at the end of the life of the entity, which would have to occur if that entity was always an alternative minimum tax taxpayer. Use of the lower alternative minimum tax rate to measure an entity's deferred tax liability could result in understatement for either of the following reasons: 1. a It could be understated if the entity currently is an alternative minimum tax taxpayer because of temporary differences. Temporary differences reverse and, over the entire life of the entity, cumulative income will be taxed at regular tax rates. 2. b It could be understated if the entity currently is an alternative minimum tax taxpayer because of preference items but does not have enough alternative minimum tax credit carryforward to reduce its deferred tax liability from the amount of regular tax on regular tax temporary differences to the amount of [tentative minimum tax](https://asc.understandingaccounting.org/glossary/t/#tentative-minimum-tax "An intermediate calculation used in the determination of a corporation's federal income tax liability under the alternative minimum tax system in the United States. See Alternative Minimum Tax.") on alternative minimum tax temporary differences. In those circumstances, measurement of the deferred tax liability using alternative minimum tax rates would anticipate the tax benefit of future special deductions, such as statutory depletion, which have not yet been earned. ##### [740-10-30-12](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:65d002c4db290b5277b018e316f9ff149d42c872da8c03835b5c60d000c9f6f7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If alternative tax systems exist in jurisdictions other than the U.S. federal jurisdiction, the applicable tax rate is determined in a manner consistent with the tax law after giving consideration to any interaction (that is, a mechanism similar to the U.S. alternative minimum tax credit) between the two systems. ##### [740-10-30-13](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:832b54e6b26fd240678f74d6637d96c09eccd4c2f61eeaf339b1e9f4aeb3515d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As required by paragraph [740-10-25-37](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-37), the tax benefit of special deductions ordinarily is recognized no earlier than the year in which those special deductions are deductible on the tax return. However, some portion of the future tax effects of special deductions are implicitly recognized in determining the average graduated tax rate to be used for measuring deferred taxes when graduated tax rates are a significant factor and the need for a valuation allowance for deferred tax assets. In those circumstances, implicit recognition is unavoidable because those special deductions are one of the determinants of future taxable income and future taxable income determines the average graduated tax rate and sometimes determines the need for a valuation allowance. ##### [740-10-30-14](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:e218c77cdd2e98ec1f0fd1623c4c3019d4a8cf2035b1fb59ac6dba98bd2832ea Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-25-39](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-39) notes that certain foreign jurisdictions may tax corporate income at different rates depending on whether that income is distributed to shareholders. Paragraph [740-10-25-40](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-40) addresses recognition of future tax credits that will be realized when the previously taxed income is distributed. Under these circumstances, the entity shall measure the tax effects of temporary differences using the undistributed rate. ##### [740-10-30-15](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:ed39b6ab1121d2204509278fcee3c2951ba436deda855dbd5e26a934ca241e9d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As noted in paragraph [740-10-25-41](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-41), the accounting required in the consolidated financial statements of a parent that includes a foreign subsidiary that receives a tax credit for dividends paid may differ from the accounting required for the subsidiary. See that paragraph for the rates required to be used to measure deferred income taxes in such consolidated financial statements. #### Establishment of a Valuation Allowance for Deferred Tax Assets ##### [740-10-30-16](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:f11ba271d23d239ebda8522643bc5fba6ff9c8761f5eedd2f103e9eb6cb01b1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As established in paragraph [740-10-30-2(b)](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-2), there is a basic requirement to reduce the measurement of deferred tax assets not expected to be realized. An entity shall evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale debt securities in combination with the entity's other deferred tax assets. ##### [740-10-30-17](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:d82b45d0dc142c2428c714ac3335fdae44e0776332aa2e4caa94f98c98c4c67a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All available evidence, both positive and negative, shall be considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. Information about an entity's current financial position and its results of operations for the current and preceding years ordinarily is readily available. That historical information is supplemented by all currently available information about future years. Sometimes, however, historical information may not be available (for example, start-up operations) or it may not be as relevant (for example, if there has been a significant, recent change in circumstances) and special attention is required. ##### [740-10-30-18](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:ea1530934263e573fc44cef5caa6531d1df4837a14b7c6a84d4bc76b93039a14 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Future realization of the tax benefit of an existing [deductible temporary difference](https://asc.understandingaccounting.org/glossary/d/#deductible-temporary-difference "Temporary differences that result in deductible amounts in future years when the related asset or liability is recovered or settled, respectively. See Temporary Difference.") or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback, carryforward period available under the tax law. The following four possible sources of taxable income may be available under the tax law to realize a tax benefit for deductible temporary differences and carryforwards: 1. a Future reversals of existing taxable temporary differences 2. b Future taxable income exclusive of reversing temporary differences and carryforwards 3. c Taxable income in prior carryback year(s) if carryback is permitted under the tax law 4. d Tax-planning strategies (see paragraph [740-10-30-19](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-19)) that would, if necessary, be implemented to, for example: 1. 1 Accelerate taxable amounts to utilize expiring carryforwards 2. 2 Change the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss 3. 3 Switch from tax-exempt to taxable investments. Evidence available about each of those possible sources of taxable income will vary for different tax jurisdictions and, possibly, from year to year. To the extent evidence about one or more sources of taxable income is sufficient to support a conclusion that a valuation allowance is not necessary, other sources need not be considered. Consideration of each source is required, however, to determine the amount of the valuation allowance that is recognized for deferred tax assets. ##### [740-10-30-19](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:6e1750954746b7a14e94831c19c78f256a0c2786294f53d335128882785167c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some circumstances, there are actions (including elections for tax purposes) that: 1. a Are prudent and feasible 2. b An entity ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused 3. c Would result in realization of deferred tax assets. This Subtopic refers to those actions as tax-planning strategies. An entity shall consider tax-planning strategies in determining the amount of valuation allowance required. Significant expenses to implement a [tax-planning strategy](https://asc.understandingaccounting.org/glossary/t/#tax-planning-strategy "An action (including elections for tax purposes) that meets certain criteria (see paragraph 740-10-30-19) and that would be implemented to realize a tax benefit for an operating loss or tax credit carryforward before it expires. Tax-planning strategies are considered when assessing the need for and amount of a valuation allowance for deferred tax assets.") or any significant losses that would be recognized if that strategy were implemented (net of any recognizable tax benefits associated with those expenses or losses) shall be included in the valuation allowance. See paragraphs [740-10-55-39 through 55-48](https://asc.understandingaccounting.org/asc/740/10/#740-10-55-39) for additional guidance. Implementation of the tax-planning strategy shall be primarily within the control of management but need not be within the unilateral control of management. ##### [740-10-30-20](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:1134b1440e3975b86c515f6fe5cecac3fbf448d00969c39e6a1fff8133a75fb1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When a tax-planning strategy is contemplated as a source of future taxable income to support the realizability of a deferred tax asset, the recognition and measurement requirements for tax positions in paragraphs [740-10-25-6 through 25-7](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-6) ; [740-10-25-13](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-13); and [740-10-30-7](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-7) shall be applied in determining the amount of available future taxable income. ##### [740-10-30-21](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:cfed79f235adfd9011634e03d9249047bf5f8449324f542e5f3153e84d9601f6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Other examples of negative evidence include, but are not limited to, the following: 1. a A history of operating loss or tax credit carryforwards expiring unused 2. b Losses expected in early future years (by a presently profitable entity) 3. c Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years 4. d A carryback, carryforward period that is so brief it would limit realization of tax benefits if a significant deductible temporary difference is expected to reverse in a single year or the entity operates in a traditionally cyclical business. ##### [740-10-30-22](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:3fd9e001be32c32bba3f870376fd66584358e667ef7346e0e538400b0bae0c65 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples (not prerequisites) of positive evidence that might support a conclusion that a valuation allowance is not needed when there is negative evidence include, but are not limited to, the following: 1. a Existing contracts or firm sales backlog that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures 2. b An excess of appreciated asset value over the tax basis of the entity's net assets in an amount sufficient to realize the deferred tax asset 3. c A strong earnings history exclusive of the loss that created the future deductible amount (tax loss carryforward or deductible temporary difference) coupled with evidence indicating that the loss (for example, an unusual or infrequent item) is an aberration rather than a continuing condition. ##### [740-10-30-23](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:3da825b4a995aa696761caad1293ceb71e084a4aea69940252e67d147fa13b86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence shall be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or all of the deferred tax asset. A cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome. ##### [740-10-30-24](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:7ea581d91008022c8f4dcefd52b758db0300a99a0dffb6d28fc34b20ed8b83fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Future realization of a tax benefit sometimes will be expected for a portion but not all of a deferred tax asset, and the dividing line between the two portions may be unclear. In those circumstances, application of judgment based on a careful assessment of all available evidence is required to determine the portion of a deferred tax asset for which it is more likely than not a tax benefit will not be realized. ##### [740-10-30-25](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:345e055f205b66141263944a759fc144543d2ee9f8aba27bb203c7e4e5306169 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [740-10-55-34 through 55-38](https://asc.understandingaccounting.org/asc/740/10/#740-10-55-34) for additional guidance related to [carrybacks](https://asc.understandingaccounting.org/glossary/c/#carrybacks "Deductions or credits that cannot be utilized on the tax return during a year that may be carried back to reduce taxable income or taxes payable in a prior year. An operating loss carryback is an excess of tax deductions over gross income in a year; a tax credit carryback is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried back and the length of the carryback period.") and carryforwards. #### Tax Rates Applicable to Items Not Included in Income from Continuing Operations ##### [740-10-30-26](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:9c8e5106b08758ba15c1b30dfa99717e906ca300a10cfdce7dcd7ae02f295b0c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The reported tax effect of items not included in income from continuing operations (for example, discontinued operations, cumulative effects of changes in accounting principles, and items charged or credited directly to shareholders' equity) that arose during the current fiscal year and before the date of enactment of tax legislation shall be measured based on the enacted rate at the time the transaction was recognized for financial reporting purposes. #### Allocation of Consolidated Tax Expense to Separate Financial Statements of Members ##### [740-10-30-27](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:7f763edcee98eca51f3b9b090271c5a3c80ea2e4dc2151577aa4045f42e7c4bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The consolidated amount of current and deferred tax expense for a group that files a consolidated tax return shall be allocated among the members of the group when those members issue separate financial statements. This Subtopic does not require a single allocation method. The method adopted, however, shall be systematic, rational, and consistent with the broad principles established by this Subtopic. A method that allocates current and deferred taxes to members of the group by applying this Topic to each member as if it were a separate taxpayer meets those criteria. In that situation, the sum of the amounts allocated to individual members of the group may not equal the consolidated amount. That may also be the result when there are intra-entity transactions between members of the group. The criteria are satisfied, nevertheless, after giving effect to the type of adjustments (including eliminations) normally present in preparing consolidated financial statements. ##### [740-10-30-27A](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-27A) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:9e2fef2bd9d7e971c9c647983eb086437ddd39a14d95340f96cd96ab162c3082 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity is not required to allocate the consolidated amount of current and deferred tax expense to legal entities that are not subject to tax. However, an entity may elect to allocate the consolidated amount of current and deferred tax expense to legal entities that are both not subject to tax and disregarded by the taxing authority (for example, disregarded entities such as single-member limited liability companies). The election is not required for all members of a group that files a consolidated tax return; that is, the election may be made for individual members of the group that files a consolidated tax return. An entity shall not make the election to allocate the consolidated amount of current and deferred tax expense for legal entities that are partnerships or are other pass-through entities that are not wholly owned. ##### [740-10-30-28](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:68bb3941982ecc042f9f510fa8505357c39bedd3446e3684afa13a689e07ee68 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of methods that are not consistent with the broad principles established by this Subtopic include the following: 1. a A method that allocates only current taxes payable to a member of the group that has taxable temporary differences 2. b A method that allocates deferred taxes to a member of the group using a method fundamentally different from the asset and liability method described in this Subtopic (for example, the deferred method that was used before 1989) 3. c A method that allocates no current or deferred tax expense to a member of the group that has taxable income because the consolidated group has no current or deferred tax expense. #### Interest and Penalties on Unrecognized Tax Benefits ##### [740-10-30-29](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:7e1a417bdb7a06449aa6e7a1d898f1ab3a63433555504a1e65b76b88bcae261b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-25-56](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-56) establishes the requirements under which an entity shall accrue interest on an underpayment of income taxes. The amount of interest expense to be recognized shall be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized in accordance with the requirements of this Subtopic for tax positions and the amount previously taken or expected to be taken in a tax return. ##### [740-10-30-30](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:27.833Z to 2026-09-10T01:16:27.833Z Record version: sha256:266215de7b10e648d4526dfcf5305646231c467b5ca27a061c47cea0d5dcee32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-25-57](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-57) establishes both when an entity shall record an expense for penalties attributable to certain tax positions as well as the amount.